BOT cuts growth forecasts for 2014 and 2015

The Bank of Thailand has slashed economic growth forecast for 2014 to 0.8 per cent from 1.5 per cent and for 2015 to 4 per cent from 4.8 per cent, because of lower-than-expected government spending and slow recovery of private investment, tourism income and export expansion.

Exports account for 70 per cent of Thai gross domestic product, so the poor performance of that sector contributed to the central bank lowering its economic-growth projection. Exports now are expected to contract by 0.5 per cent year on year in 2014, lower than its previous forecast of flat growth.

The forecast for export growth in 2015 was also cut to only 1 per cent from the 4 per cent estimated previously.

"A slower-than-expected expansion in all components [mentioned above] are responsible for the cut in GDP projections for 2014 and 2015," BOT Assistant Governor Mathee Supapongse said.

However, the central bank believes that GDP in the fourth quarter of this year will expand by 2.7 per cent over the previous quarter and more than 4 per cent in the first three months of next year quarter on quarter.

The Kingdom's GDP was around US$387.3 billion as of the end of 2013.

Domestic consumption accounted for 50 per cent of GDP, government spending for 15-20 per cent, and private investment for 15-20 per cent.

The Commerce Ministry had earlier said the country's real exports in November contracted by 1 per cent month on month. Exports in the first 11 months of 2014 contracted by 0.42 per cent, compared with the contraction of 0.32 per cent for 2013.

"Merchandise exports are likely to grow at a slower rate because of both external and internal factors such as weaker demand from Europe, Japan and China," Mathee said.

He added that domestic production limitations, caused by structural problems within the sector, had lowered the country's export competitiveness in some products while lower oil prices had made it less likely for the prices of agricultural products to increase in the near future.

Pimonwan Mahujchariyawong, deputy managing director at Kasikorn Research, said the BOT's predictions showed that it believed economic growth next year would depend more on domestic demand led by government spending. The research centre also forecast that there would be an increase in global uncertainty next year, mainly from the geopolitical and economic risks in Russia, which could become contagious, and if it does, it will affect the economic expansion of the euro zone.

She also said the obvious risk from relying on government spending to be the main driver for investments next year was that the government might not deliver as promised. Also, the lower oil prices will negatively affect countries that export energy next year, but the overall net effect from the lower global oil price is positive.

The BOT's projections for domestic consumption and government spending in 2014 were lowered from its September predictions of 1.1 and 4.1 per cent year on year respectively to the current 0.8 per cent and 1 per cent respectively. The revision was because durable consumption is still impeded by high household debt and depressed farm income. Also, public investments are slower than expected while private investment is predicted to contract by 0.8 per cent as the private sector is still waiting for the military government to invest.

The central bank's predictions for the expansion of domestic consumption, private investment and government spending in 2015 are 3.1 per cent, 7.2 per cent and 4.5 per cent, respectively, lower than its previous projection of 4 per cent, 10.2 per cent and 5.1 per cent.